18th Aug Flash Short – Update Week 6

Monday 25th Sept 2017

Trading was really quite busy following on from the Atlas Capital Partners financing RNS – as can be seen from the nett trade position during the day the market reaction was unquestionably positive – PIs were buying strongly as they clearly saw the announcement as another piece of the BMN jigsaw falling into place.

Yet despite a net excess of Buys of more than 650K by 3:30PM the SP remained unmoved – only a few large Sells late in the day, and even after hours, brought the nett trading position back towards neutrality. It is almost as if the MMs knew that there were sells in the pipeline.

The SP ended at 9.25p, flat on a volume of 2.9M (1.43M Buys vs 1.47M Sells).

Tuesday 26th Sept 2017

A much quieter day – the two 350K trades at 9:23AM (9.35p) and 9:25AM (9.45p) have been ascribed to a T20 rollover. This determination is based on the close timing of the trades – the spread, which is approximately half of the real Bid-Ask spread in play, and the fact that these two trades, if they were both Buys, totalled 700K shares, but did not affect either Bid or Ask. The subsequent trades between 10:30AM and 10:50AM only amounted to 260K Buys – yet this led to the increase in the Bid to 9p from 8.75p.

The SP ended at 9.25p, flat on the day on a volume of 2.2M (1.08M Buys vs 1.13M Sells)

Wednesday 27th Sept 2017

Busier than the preceding day – by 10AM a nett deficit of almost 500K shares had been established by a series of PI sells, topped off with 3x100K Sells – is this another attempted short ? Well given the fact that those 100K Sells had zero effect on the Bid or Ask if it was shorting activity then it was a pretty weak-willed shorting attempt. Two T20 rollovers towards the end of the day were identified and correctly ascribed as 1x Buy + 1x Sell – so no nett trade position to the MMs.

Despite the nett trade deficit growing to more than 650K shares by the end of trading the SP was again unaffacted.

The SP ended at 9.25p, flat on the day on a volume of 1.8M (569K Buys vs 1.23M Sells).

Thursday 28th Sept 2017

Trading was fairly uneventful until the afternoon when another series of 3x100K sells was observed – these were all at 9.3p and were widely spaced in time – again either a very lackadaisical shorter or something else is going on.

Despite the nett trade deficit growing to more than 650K shares by the end of trading the SP was again unaffacted negatively – in fact the SP rose. See the conclusion for an discussion of what may be going on.

The SP ended at 9.375p, up 1.2% on the day on a volume of 965K (151K Buys vs 814K Sells).

Friday 29th Sept 2017

Trading was quiet until the afternoon when a large (350K) T20 rollover was identified at 9.0/9.1p. A couple more large sells at the end of the day led to nett trading deficit of 485K shares, but again the SP was not affected.

The SP ended at 9.375p, flat on the day on a volume of 1.6M (549K Buys vs 1.03M Sells).

Summary for Week 6

SP Change

TBP estimated Buys – Sells

Potential Shorting Activity

Comments

Monday 25-9-17

Flat

– 43,607

–

–

Tuesday 26-9-17

Flat

– 48,767

–

–

Wednesday 27-9-17

Flat

– 661,735

–

–

Thursday 28-9-17

+ 1.2%

– 662,168

–

–

Friday 29-9-17

Flat

– 485,047

–

–

Total

+ 1.2%

-1.90M

–

Conclusion

This week might be characterised as PIs appearing to sell 2M shares more shares than they bought. Yet the SP rose ? This makes no sense.

The other way of looking at it is to say that the Market Makers bought 2M more shares than they sold. Had PIs being trying to get rid of shares the SP would have dropped. The reason it did not is that PIs were not looking to sell – an alternative explanation is that (one or more) Market Makers needed to buy shares – and had the SP dropped then there would have been none available. Here it appears we are not looking at PI<->Market Maker trading but rather Market Maker<->Market Maker trading.

This all makes complete sense when you see the nett trading position for the previous 3 weeks:

Week after 18th Aug Short

TBP estimated Buys – Sells

Week 1

– 0.36 M

Week 2

+ 1.2 M

Week 3

+ 3.6 M

Week 4

+ 0.76 M

Week 5

– 1.36 M

Week 6

– 1.90 M

You can see that between weeks 2 and 4 the Market Makers sold 5.5M more shares than they bought. Remember that the Market Makers do not manufacture these shares – they can only sell the same number of shares that they have bought.

Having sold this excess in the salad days of Weeks 2,3 and 4 when the SP rose from 9.75p to above 10p following the robust repulsion of the 18th August short (and possibly some shorts being closed then) it appears that at least one of the Market Makers subsequently needed to buy the shares to fill their previous Sell orders. Whilst they would have liked the SP to drop significantly below 9p during the stock refill phase (weeks 5 and 6) they barely managed to get it to go much below 9.5p – they needed the shares and needed to pay the going rate or else there is nothing to buy.

If all of this looks to you as if the Market Makers are running a short, then I have to agree.

It is likely that they still need perhaps 2 Million shares and will have to pay more than 9.5p next week. Anyone wishing to take advantage of this situation should perhaps consider avoiding using T20 Buys – these are of course visible to the Market Makers and simply gives them 20 days to try and drive the price down – it appears that the SP responds much better to immediate trades where the Market Makers have no idea whether they will ever see your shares again.

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

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Site content is not authorised by the FCA and you are not safeguarded by the Investor Protection measures of the Financial Services and Markets Act 2000. In particular the content does not constitute professional, financial or investment advice & must not be used as a basis for making investment decisions.

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